This sovereign rating, restated from the
Ratings Report indicated above, is issued by The Economist Intelligence Unit
credit rating agency, registered in accordance with Regulation (EC) No 1060/2009
of 16 September 2009, on credit rating agencies, as amended, and is issued
pursuant to such regulation.

The sovereign risk rating remains at CCC, reflecting the growing debt burden and the cost of servicing it. Nevertheless, continued solid economic growth will help to offset the impact on most debt ratios, while growing hard-currency earnings will support repayment capacity.

Currency risk

The currency risk score remains within the CCC band. The volatility caused by a devaluation of the currency in late 2017 is settling down, although the currency remains overvalued and is at risk, therefore, of further volatility in the future. Compounding currency risk are low foreign-exchange reserves and twin fiscal and current-account deficits.

Banking sector risk

Banking sector risk remains CCC-rated. Although non-performing loans among banks as a whole remain below statutory levels, they are much higher at banks that are overexposed to the currently troubled agricultural and manufacturing sectors. Lending remains politicised, meaning that systemic problems could arise should large numbers of public-enterprise borrowers prove unable to repay loans.

Political risk

Significant political changes to a less hardline leadership in early 2018 give some hope of meaningful reform to lessen the high level of ethnic tensions that have driven instability in Ethiopia in recent times. However, this will be a long term process at best, with ample opportunity for spikes in tensions along the way, with the rating for this category remaining CC. Meanwhile, an attack by external terrorist groups, in particular Somalia-based al-Shabab, will remain a potential risk factor given the porous nature of borders in the area.

Economic structure risk

Commodity exports generate a large proportion of foreign-exchange earnings and fiscal revenue, sustaining the economy's vulnerability to external shocks. A persistent current-account deficit and fiscal rigidities also weigh on the rating.